00:00Warren Buffett's Berkshire is now sitting on $382 billion in cash and treasury bills,
00:06the largest cash pile in its history. And interestingly, this is happening just as
00:10Buffett steps down from the CEO position, with leadership transitioning to Greg Abel.
00:15To put that into perspective, that's enough money to buy about 480 companies in the S&P 500.
00:21In fact, cash now makes up roughly 56% of Berkshire's portfolio, higher than its allocation
00:26to stocks. But Buffett didn't build his reputation by holding cash. He built it by investing in great
00:32businesses. And today, that cash position shows that Buffett is becoming more cautious on the
00:37markets. But not everyone currently agrees with Buffett's cautious approach. While Buffett is
00:41holding record levels of cash, professional money managers are doing the opposite. According to a
00:46Bank of America fund manager survey, global fund managers are now holding just close to 3% in cash,
00:52one of the lowest levels on record. So while Buffett is sitting at roughly 56% in cash,
00:57the rest of the market is almost fully invested. That gap between Buffett and the rest of the market
01:02has rarely been this wide. So the real question is, who's right? And more importantly, what does
01:07Buffett see that others might be missing? Over the past few years, Berkshire has been a net seller of
01:12stocks for 13 consecutive quarters. In total, Berkshire sold more than $180 billion worth of equities.
01:19A large part of Berkshire's recent selling has come from its largest position, Apple. At one point,
01:24Berkshire held more than 900 million shares of Apple, making Apple nearly half of its equity
01:30portfolio. But over the past few years, that position has been reduced significantly. Now,
01:35that doesn't necessarily mean Buffett has turned negative on Apple, as even after the stake reduction,
01:39Apple still remains the largest position in Berkshire's portfolio. But it does mean that one of the
01:44largest investors in Apple has been quietly taking profits during one of the strongest tech rallies in
01:50history. A similar pattern can be seen with Bank of America. At one point, Berkshire owned about 1
01:54billion shares of the bank. But over the past couple of years, that position has been trimmed by nearly
01:5950%. In other words, Buffett is reducing exposure and concentrated positions in building liquidity,
02:06even as markets continue to trade near highs. But this isn't the first time Buffett has built up
02:11large cash reserves. If you look at the blue bars on this chart, they represent cash as a percentage of
02:16Berkshire's total assets. We can notice what happened in the late 1990s. Cash levels began to rise just
02:21before the dot-com bubble. And when that bubble burst, the US stock market fell by nearly 50%. Now move
02:27forward to the mid-2000s. Buffett's cash levels again rose before the global financial crisis hit in
02:332008, leading to a massive sell-off with S&P 500 dropping by close to 60%. So historically, Buffett has
02:40been
02:40successful in building up cash before market stress. And today, he's doing the same once again. When we
02:46look at the market today, similar warnings have started to reappear. One of Buffett's favorite
02:50valuation indicators is now at the highest level since the 1950s. This is an indicator commonly
02:56known as the Buffett indicator. And Warren Buffett has previously said that this is the best single
03:00measure to understand where valuations stand at any given moment. The indicator simply compares the
03:06total value of the US stock market to the size of the entire US economy. And currently, this ratio
03:11stands at well over 200%, which suggests that the S&P 500 is valued at more than double the size
03:17of the
03:18entire US economy. And at the same time, markets have now become extremely concentrated. Today, the top
03:2410 companies make up over 40% of the S&P 500, and this number has nearly doubled since the
03:291990s.
03:30That means a relatively small group of companies have been responsible for much of the market gains.
03:36So from Buffett's perspective, when valuations get this stretched and markets are highly concentrated,
03:41that makes it difficult for a value investor like him to find great companies at a fair value.
03:46And instead of forcing capital into expensive assets, he's choosing to wait. But importantly,
03:51waiting today looks very different than it did in the past. Berkshire isn't just holding cash,
03:55it's holding short-term US treasury bills. And the scale of that position is remarkable.
04:00Berkshire Hathaway currently holds about $360 billion worth of treasury bills,
04:05which is nearly double than that of Federal Reserve's own holding of $195 billion.
04:10So this isn't idle cash, with yields now at roughly 4%. Berkshire's current treasury bill
04:15holding could generate roughly $15 billion in annual interest income, which is higher than what
04:20companies like Starbucks or Netflix generate in a typical year. So for the first time in decades,
04:25Buffett can afford to wait while still earning a meaningful return. But we should know that
04:29valuation and concentration are not market timing tools. In the past, even when Buffett was building
04:34cash, markets didn't crash immediately. In fact, they continued rising for years, because markets
04:39can stay overvalued for an extended period of time. But Buffett has always been clear about this. As he
04:45famously said, the stock market is a device for transferring money from the impatient to the patient.
04:50So even if markets continue to rise from here, Buffett may simply be choosing patience over
04:55participation. So no, Buffett isn't trying to predict a crash. He's doing what he has always done,
05:00refusing to overpay and waiting for the right opportunity. Right now, the gap is clear. Buffett
05:05is sitting at roughly 56% cash, while the rest of the market is at 3%. And that gap won't
05:10stay this
05:11wide forever. Either Buffett finds value and puts that cash to work, or the market corrects,
05:15and those opportunities come to him. At Capital.com, we'll keep tracking the big moves by major
05:20investors and what that means for the markets. Thanks for watching.
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